• Banking and Finance in Historical Perspective
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38. Jahrgang | Jahr 2012 | Heft 1


Aufsatz: Seite 35–57

John D. Turner
British Banking Stability and Bank Capital in the Long Run
This paper surveys two centuries of British banking stability and bank capital. Data on failure rates suggests that there have only been two severe systemic banking crises over this period – 1825/26 and 2007/08. It is argued in this paper that these two crises are correlated with inadequately capitalised banking institutions, which in the case of the first crisis meant that banks could not absorb shocks, and in the case of the second meant that risk shifting was not constrained. Banking stability in the interim period was initially due to banks having adequate capital, in the form of extended shareholder liability, to constrain risk shifting. In the post-1940 era, when bank capital was at very low levels, stability was associated with substitutes for bank capital such as government constraints on bank behaviour.